Sunday, 19 October 2014

Venezuela's budget: the growing discrepancy

Here you see how the national government has been planning its budget in the last few years. I couldn't find the complete data for 2011, but the other four years will do for now.

In blue you see the amount of Bolivars the government planned for the national budget for each year and in red the amount of extra money it finally spent. I did a project for Q4 of 2014 based simply on the average so far.

In 2010 31% of the expenditures were over the budget. That amount has risen to 41% now. Maduro recently said Venezuela won't suffer from the relatively (my adverb) low oil prices because the budget had been calculated based on an oil barrel price of $60. The thing is: we are going to end up spending as much as if we had calculated the oil price at around $101...and the average oil price now, $102, is going to drop further for sure.

I am no economist and there are many factors I ignore. The government might try to devalue again this year, although it could be mad enough and try to postpone that until early 2015 just for the sake of not losing face. When it does devalue, it will have more extra Bolívars...but inflation will eat them up as soon as they appear.

In any case, even harsher times await Venezuelans for 2015. This, on the other hand, might be what is needed for some to have their Damascus moment.

4 comments:

I'm curious how did you get the average oil price of $102? I think it's more like $82. For the past year perhaps $102, but going forward lower.

Venezuela oil is not light and sweet but heavy and sour. So the reason Venezuela uses a lower number per barrel is because it can only sell at a lower number. So an $80 basket price may be a $70 venezuela price. Then to even get there venezuela may need to add / mix in a lighter blend. So that adds costs.

So to be clear, if prices fell another $10 - $20, there will be huge drops in the marginal profit by PVSDA.

If prices go to $60 (highly unlikely) that would be an absolute disaster for venezuela, at some point you can't make money on production. $60 is so low that many countries that can produce at $80 if capital is already a sunk cost may have trouble at $60.

And this excludes all frictional and rent seeking losses in the Venezuelan system. The wild thing is that venezuela expropriated major oil assets just ahead of this price decline. So Venezuela is going to be paying some arbitration payouts based on much higher value, and then is going to be dealing with the lower productivity and lower prices of their expropriated assets rather than letting the capitalists take the hit.

Another $10 - $15/barrel drop and within 6 months I'd be very worried about Venezuela.

I meant $82 as average for the year for OPEC oil as of now (see OPEC site). Of course, Venezuela's oil is clearly cheaper...still, not yet $82 for the WHOLE year...the average will be soon there, though. In any case:Venezuela will be in very bad shape even if oil prices don't drop further but just keep at this level.

Venezuela is a runaway train at this point, with Castro at the helm as the train goes off the rails. The chavista electorate still stubbornly refuses to blame the government/communism for the problems, preferring to believe the paranoid lies that Maduro spouts about Columbia and the ever-present CIA. The free handouts of oil to ideological allies and opportunistic parasites will falter also. It is comical that Maduro decries the increased US oil output from fracking as some sort of crime being perpetrated against the 3rd world while PDVSA claims constantly that it is working to increase its own output by any means.

Venezuela is still generating significant oil wealth, and does have productive capacity (a bit) locally. So I'm not sure if it's a runaway train yet. Through the end of the year come some major foreign currency payments. We will see if those happen, I think they will. After that though, stress may build... Vendor credit (in the form of trapped foreign funds awaiting exchange at official rates) has dried up at this point, and I don't see airlines etc starting to fly anytime soon unless they can settle at USD.

The Chinese though may be a good lifeline for Venezuela given they take a very long view and are eager to lock up natural resources such as oil. That would give Maduro a much better chance, as he could then borrow against future oil production as well as spend current oil production.

Will be hard to be the next generation though paying of all these loans!

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Minister of "Justice" on socialism, his tie and his shoesHere an English article explaining the whole thing for those who do not speak Spanish. I wonder if Italian communist ministers also wear that kind of clothes.